EARNINGS / Part 1 of 2 - Numac Announces Consolidated Financial and
Operating Results
TSE, ME, AMEX SYMBOL: NMC
OCTOBER 27, 1998
CALGARY, ALBERTA--Numac Energy Inc. today announced its
consolidated financial and operating results for the first nine
months of 1998.
In the first nine months of 1998, Numac incurred a pre-ceiling
test loss of $21.8 million ($0.23 per share) compared to restated
net income of $7.5 million ($0.08 per share) in the first nine
months of 1997. The Company's net loss of $127.1 million ($1.33
per share) in the nine months includes a reduction in the carrying
value of the Company's oil and gas assets of $191.1 million
($105.3 million net of future taxes) related to a ceiling test
writedown taken at September 30, 1998. The writedown is
attributable to low commodity prices and a significant investment
in heavy oil projects in 1996 and 1997.
Commencing in 1998, Numac has adopted the Canadian Institute of
Chartered Accountants' new standard of accounting for income
taxes. Under the new standard, which must be adopted no later
than the year 2000, future income taxes are recognized for all
differences between accounting and tax values of assets and
liabilities, based on current income tax rates. Previously, such
differences were charged to income in future years as the assets
were depreciated or depleted. Numac has restated the financial
statements to record the change retroactively for comparative
purposes, resulting in a $57.6 million increase to the deficit at
December 31, 1997.
In the third quarter of 1998, cash flow and profitability
continued to be seriously affected by low oil prices. Numac's
funds from operations for the first nine months of 1998 amounted
to $54.8 million compared with $94.7 million in the same period a
year ago. The major factor contributing to the cash flow decline
was a 33 percent drop in the average price realized by the Company
for its crude oil and natural gas liquids production.
Late in the third quarter of 1998, as the result of the expanded
asset divestiture plans and the reorganization of Company
personnel into multi-disciplinary teams, Numac reduced its head
office staff by 20 percent. This will significantly reduce
general and administrative expenses going forward. General and
administrative expenses in the first nine months of 1998 included
$4.2 million for corporate restructuring and senior executive
departure costs during the second and third quarters. Excluding
these costs, general and administrative expenses in the first nine
months averaged $0.65 per barrel of oil equivalent, compared with
$0.57 per barrel of oil equivalent in the first nine months a year
ago.
Capital expenditures on exploration and development activities in
the first nine months of 1998 totaled $77.0 million, compared with
$124.6 million in the same period of 1997. A major factor
contributing to the reduction in capital spending was the
suspension of further development of the Company's heavy oil
projects, pending an improvement in heavy oil prices.
Pursuant to its Normal Course Issuer Bid, which expires in
December 1998, Numac purchased and cancelled 205,100 of the
Company's common shares during the first quarter of 1998 for a
total cost of $1.1 million, or $5.17 per share. No shares were
purchased during the second and third quarters.
OVERVIEW
The third quarter of 1998 was a period of significant change for
Numac, highlighted by the appointment of Douglas W. Palmer as
President and Chief Executive Officer and the subsequent
implementation of a corporate restructuring plan. Key elements of
the restructuring include a reduction in the number of core areas
and an increased emphasis on asset rationalization activity,
including plans for an additional major sale of non-core
properties in the fourth quarter.
Aimed at sharpening Numac's focus and improving the Company's
financial flexibility, the plan incorporates an operating emphasis
on just three core areas where distinct strategic advantages have
already been established. These areas are Numac's significant
natural gas base in northeast British Columbia, its conventional
light oil interests in central Alberta, and its expertise in
tertiary light oil recovery in central Alberta and southeast
Saskatchewan utilizing advanced CO2 flood technology. To maintain
exposure to high impact exploration opportunities, up to 10
percent of the Company's capital budget will be allocated to new
venture exploration outside of core areas.
ASSET RATIONALIZATION
Numac embarked upon a non-core property divestiture program a year
ago. The current phase of the program, comprising 100 properties
with an estimated 9.3 million barrels of oil equivalent proved
reserves and production averaging 3,400 barrels of oil equivalent
per day, will be completed in the fourth quarter. Despite the
present low oil price environment, good values are being received
for these assets. The Company realized over $20 million in the
third quarter and expects to realize an additional $62 million
prior to year-end.
The final phase of the divestiture program, comprising properties
with an estimated aggregate value of approximately $50 million, is
currently being assembled. Given an acceptable economic climate,
these properties will be offered for sale during the fourth
quarter of 1998.
In separate asset rationalization activity, Numac and an industry
partner recently concluded the exchange of oil and gas properties
valued at over $40 million. The key component of the exchange was
the acquisition of working interests, ranging from 80 percent to
100 percent in properties adjacent to the Company's largest crude
oil producing property at Ferrier in central Alberta. This
acquisition has significantly enhanced Numac's Ferrier property,
providing increased operating efficiencies and a competitive
advantage through control of area infrastructure. Properties
divested by Numac in exchange comprised non-operated, non-core
interests.
/T/
EXPLORATION AND DEVELOPMENT
DRILLING RESULTS - FIRST NINE MONTHS 1998
Exploration Development Total
--------------------------------------------------------------
Gross Net Gross Net Gross Net
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Oil 4 2.4 11 6.0 15 8.4
Gas 7 3.1 50 23.9 57 27.0
Dry 6 4.0 5 2.4 11 6.4
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17 9.5 66 32.3 83 41.8
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Success Rate (percent) 87 85
/T/
During the third quarter, exploration and development activity was
low as the Company concentrated on its restructuring plans. For
the first nine months, the Company's participation in 83 gross
(41.8 net) wells resulted in 57 gross (27.0 net) gas wells, 15
gross (8.4 net) oil wells and 11 gross (6.4 net) abandoned wells.
OUTLOOK
On completion of the asset divestiture programs, Numac expects its
remaining production to average approximately 14,000 barrels per
day of crude oil and natural gas liquids and 110 million cubic
feet per day of natural gas. The Company has completed an
independent evaluation of its reserves. Year-end reserves are
expected to be approximately 75 million BOE's proven and 108
million BOE's proven and probable.
The Company's post-divestiture long-term debt is expected to be
approximately $200 million. Enhanced financial flexibility will
enable Numac to pursue an aggressive capital program in core areas
during 1999. The 1999 capital program is expected to exceed $100
million.
The introduction of a sharper operating focus, together with team
accountability and a strict adherence to capital reinvestment
criteria, are expected to result in much improved financial
performance. For the longer term, the restructuring steps that
have been taken will provide Numac with a solid operational base
for sustainable growth.
This news release contains forward-looking information. Actual
future results may differ materially. The risks, uncertainties
and other factors that could influence actual results are
described in Numac Energy's annual report to shareholders and
other documents filed with regulatory authorities.
Numac Energy Inc. trades on the Toronto, Montreal and American
stock exchanges under the symbol NMC.
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